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95th Congress | COMMITTEE PRINT f /.''^''''"J'^l 

2a Session J t 1'kint Di>-x>4 



THE COST OF AN URBAN BLACKOUT 

THE CONSOLIDATED EDISON BLACKOUT, 

JULY 13-14, 1977 



A STUDY 

PREPARED AT THE REQUEST OF 

John D. Dingell, Chawrnan 

SUBCOMMITTEE ON ENERGY AND POWER, 

COMMITTEE ON 

INTERSTATE AND FOREIGN COMMERCE 

UNITED STATES HOUSE OF REPRESENTATIVES 

BY THE 

CONGRESSIONAL RESEARCH SERVICE 
LIBRARY OF CONGRESS 




U.S. GOVERNMENT PRINTING OFFICE 
28-784 WASHINGTON : 1978 



COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE 



HARLEY 0. STAG 
JOHN E. MOSS, California 
JOHN D. DINGELL, Michigan 
PAUL G. ROGERS, Florida 
LIONEL VAN DEERLIN, California 
FRED B. ROONEY, Pennsylvania 
JOHN M. MURPHY, New York 
DAVID E. SATTERFIELD III, Virginia 
BOB ECKHARDT, Texas 
RICHARDSON PREYER, North Carolina 
CHARLES J. CARNEY, Ohio 
RALPH H. METCALFE, IlUnois 
JAMES H. SCHEUER, New York 
RICHARD L. OTTINGER, New York 
HENRY A. WAXMAN, California 
ROBERT (BOB) KRUEGER, Teras 
TIMOTHY E. WIRTH, Colorado 
PHILIP R. SHARP. Indiana 
JAMES J. FLO RIO, New Jersey 
ANTHONY TOBY MOFFETT, Connecticut 
JIM SANTINI, Nevada 
ANDREW MAGUIRE. New Jersey 
MARTY RUSSO, Illinois 
EDWARD J. MARKEY, Massachusetts 
THOxMAS A. LUKEN, Ohio 
DOUG WALGREN, Pennsylvania 
BOB GAMMAGE, Texas 
ALBERT GORE, Jr., Tennessee 
BARBARA A. MIKULSKI, Maryland 



GERS, West Virginia, C/iairmon 
SAMUEL L. DEVINE, Ohio 
JAMES T. BROYHILL, North Carolina 
TIM LEE CARTER, Kentucky 
CLARENCE J. BROWN, Ohio 
JOE SKUBITZ, Kansas 
JAMES M. COLLINS, Texas 
LOUIS FREY, Jr., Florida 
NORMAN F. LENT, New York 
EDWARD R. .\L^.DIGAN, IlUnois 
CARLOS J. MOORHEAD, California 
MATTHEW J. RINALDO, New Jersey 
W. HENSON MOORE, Louisiana 
DAVE STOCKMAN, Michigan 
MARC L. MARKS, Pennsylvania 



W. E. Williamson, Chief Clerk and Staff Director 

Kenneth J. Painter, First Assistant Clerk 

Eleanor A. Dinkins, Assistant Clerk 

WiLLiAU L. Burns, Printing Editor 



Elizabeth Harrison 
Jeffrey H. Schwartz 
Brun R. Moir 
Karen Nelson 



Professional Staff 

Ross David Ain 
Christopher E. Dunne 
William M. Kitzmiller 
Mark J. Raabe 
Thomas M. Ryan 



Lewis E. Berry, Minority Counsel 



Subcommittee on Energy and Power 
JOHN D. DINGELL, Michigan, Chairman 



RICHARD L. OTTINGER, New York 
ROBERT (BOB) KRUEGER, Texas 
PHILIP R. SHARP. Indiana 
ANTHONY TOBY MOFFETT, Connecticut 
BOB GAMMAGE. Texas 
JOHN M. MURPHY, New York 
DAVID E. SATTERFIELD III, Virginia 
TIMOTHY E. WIRTII, Colorado 
ANDREW MAGUIRE, New Jersey 
MARTY RUSSO, lUinois 
EDWARD J. MARKEY, Massachusetts 
DOUG WALGREN. Pennsylvania 
ALBERT GORE, Jr.. Tennessee 
HARLEY O. STAGGERS, West Virginia 
(ex ofllcio) 

Frank M. Potter. 



CLARENCE J. BROWN. Ohio 
CARLOS J. MOORHEAD. CaUfornia 
JAMES M. COLLINS. Texas 
W. HENSON MOORE. Louisiana 
DAVE STOCKMAN, Michigan 
EDWARD R. MADIOAN, lUinois 
SAMUEL L. DEVINE, Ohio (ex officio) 



Jr.. Staff Director and Counsel 



(II) 



CONTENTS 



Page 

Letter of transmittal v 

Letter of submittal vii 

Summary ix 

Introduction 1 

A concept of outage costs 1 

The July blackout 3 

The social costs 5 

Governmental costs 6 

The total 6 

The economic costs 7 

Output losses 7 

National costs 10 

The total 11 

The cost of the blackout 11 

Tables 

1 — Social costs, Consolidated Edison blackout, July 13-14, 1977 6 

2— Value of output. New York City, 1972 and 1977 8 

3 — Indices of business activity. New York State and City, by selected 

months, 1976 and 1977 9 

4 — \\'eekly trading by stock markets, selected weeks, 1976 and 1977 9 

5 — Economic costs, Consolidated Edison blackout, July 13-14, 1977 12 

6— The cost of an urban blackout, July 13-14, 1977 12 

Appendix A — Governmental cost estimates by the city of New York and 

Westchester County 13 

(in) 



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LETTER OF TRANSMITTAL 



Congress of the United States, 

House of Representatives, 
1 Subcommittee on Energy and Power, 
Committee on Interstate and Foreign Commerce, 

Washington, D.C., June 5, 1978. 
Hon. Harley O. Staggers, 

Chairman, Committee on Interstate and Foreign Commerce, U.S. House 
of Representatives y Washington, D.C. 
Dear Mr. Chairman: I recommend that the attached study, pre- 
l)ared at my request by the Congressional Research Service, Library 
of Congress, be issued as a Committee Print of the Committee on 
Interstate and Foreign Commerce. 

The study provides an analysis of the costs incurred by consumers, 
the city of New York, the State of New York and the Nation, as a 
result of the massive power failure which occurred in the system of the 
Consolidated Edison Co. of New York on July 13-14, 1977. Its purpose 
is to provide the Congress, Federal, and State agencies and utility 
companies with a benchmark which will help them to evaluate the cost 
of improved system reliability as against the costs of system failure. 
Sincerely yours, 

John D. Dingell, 

Chairman. 
Enclosure. 

(V) 



LETTER OF SUBMITTAL 



The Library of Congress, 
Congressional Research Service, 

Washington, D.C. 
Hon. John D. Dingell, 

Chairman, Subcommittee on Energy and Power, Committee on Interstate 
and Foreign Commerce, U.S. House of Representatives, Washing- 
ton, D.C. 
Dear Mr. Chair:\ian: On September 27, 1977, 3'OU asked CRS to 
prepare an anah^sis of the economic impact of the Juh" 1.3-14 Con- 
solidated Edison blackout. In reply to that request, I am attaching a 
report entitled ''The Cost Of An Urban Blackout, The Consolidated 
Edison Blackout, July 13-14, 1977." 

This report breaks costs into two major categories, social and eco- 
nomic. Social costs are primarily those related to the riots, while eco- 
nomic costs encompass lost output both regional and national, utility 
and governmental revenue losses, as well as spoilage and damage. 

The paper was prepared b}' Alvin Kaufman, senior specialist in 
business economics (Resources and Regulation), and Barbara Daly, 
research assistant. 

Sincerel}^ 3'ours, 

Gilbert Gude, Director. 

(VII) 



Summary 

On July 13, 1977 a major electrical outaf^e occurred on the Con- 
solidated Edison system, interrupting service to approximately 8 mil- 
lion people in New York City and Westchester Coimt^^ As a 
consequence of the outage (which lasted up to 25 hours in some areas) 
costs were incurred — both economic and social. Inasmuch as these 
losses are a measure of the benefits that flow from not having an 
outage, and thus are a determinant of the degree of reliability that 
should be built into an electrical S3'stem, an assessment of these costs 
is useful. In this report, prepared at the request of Congressman John 
D. Dingell, chairman of the Subcommittee on Energy and Power, 
CRS attempts to quantify these costs. 

In computing losses we hav^e included explicit costs — such as lost 
and deferred production, damage to equi})ment, spoilage, etc. In addi- 
tion, implicit losses incurred, such as regional and national impacts 
are estimated. Costs of the rioting and looting that occurred during the 
blackout period and their results are necessarily included in the total 
as a social cost. Beyond these, there are other implicit costs in terms 
of inconvenience and frustration which we are unable to quantify, but 
which must be noted. As it would be totally speculative, no attempt 
is made to assess any possible long-range economic consequences the 
city might face (closed businesses, loss of new business) as a result of 
the blackout. 

This report estimates the July 13-14 blackout losses at approxi- 
mately $310 million. As the figures in table 6 of the text indicate, this 
breaks down to $172.7 million as an economic cost and $136.8 million 
as a social cost. Thus had the social disorders which resulted from this 
blackout not occurred, the total cost would have been somewhat lower 
(by approximately^ 40 percent). 

It should be noted also that while total economic losses are large 
dollarwise, these are not a large percentage of the output of the 
affected areas. Due to the nature of the NYC economy, most of the 
output losses (approximatel}^ 90 percent) which occurred during the 
blackout period were probably made up within a few days. 

In presenting the data included in the text, it is our feeling that 
while the quality of the numbers varies from hard to speculative, the 
assumptions upon which calculations are based are quite conservative, 
the proportions between items appear logical, and the totals seem 
reasonable. 

(IX) 



28-784—78- 



The Cost of an Urban Blackout 
(The Consolidated Edison blackout, July 13-14, 1977) 

INTRODUCTION 

On July 13, 1977, a major outage occurred on the Consolidated 
Edison electrical system, which interrupted service to some 8 million 
people in New York City and Westchester County for up to 25 hours. 
As a consequence of this outage, losses were incurred by the economy 
explicitly in terms of lost production, damage to equipment and spoil- 
age, as well as implicit^ in terms of inconvenience and frustration. 
In addition, losses were sustained by society as a consequence of riot- 
ing, looting, and pillage. Inasmuch as these losses are a measure of the 
benefits that flow from not having an outage, and thus are a deter- 
minant of the degree of reliability that should be built into an elec- 
trical system, an assessment of these costs is useful. 

A CONCEPT OF OUTAGE COSTS 

The costs of an outage are difficult to determine because of the mul- 
tiplicity of factors involved and the general lack of data. For example, 
the nature and extent of the losses from the 1965 blackout, which im- 
pacted all of the Northeastern United States, are still unclear. These 
are estimated at $100 million, but the method used to compute the 
estimate and the items included are unknown.^ Another indicator of 
the complexity of the subject is the large number of loss estimates 
published in the newspapers since the outage. A culling of these clip- 
pings indicate items such as: ^ (1) Consolidated Edison will incur losses 
for lost revenues and the cost of restoring services of approximately 
$10 million, while the replacement of damaged equipment v/ill encom- 
pass another $10 million. (2) Lost tax revenues were estimated at 
$5 million, retail sales at $20 million and lost brokerage commissions 
at $15 million; (3) Losses from riot, pillage, etc. were estimated at $1 
billion; (4) grants and loans totaling $114 million were available from 
the Small Business Administration, the U.S. Labor Department and 
the City Emergency Aid Commission to help riot victims reestablish 
themselves. These estimates indicated that losses ranged between 
$150 million to over $1 billion. This wide divergence between estimates 
indicates the lack of certaint}^ involved in their prepaiation. In addi- 
tion, there are several conceptual problems in the sense that lost busi- 
ness will be made up to some degree after electrical services are re- 
instituted. That is, some of the lost brokerage commissions, retail sales, 
etc., are not lost but rather deferred. People may not buy a suit on 
the day of the blackout, but will buy it at a later date. Another prob- 
lem is that the costs noted above do not include governmental costs, 
such as overtime for police and firemen. 

» FPC. "Northeast Power Failure, Nov. 9 and 10, 1965," Deo. 6, 1965. p. 40. Also "Prevention of Power 
Failures." v. 1, July 9. 1967, p. 8. 
2 Various issues of the New York Times between July 15 and Aug. 5, 1977. 

(1) 



Another way of looking at outage costs is on a gross basis. For 
example, we could develop the relationship between Gross National 
Product (GNP) and electrical supply, and then compute the losses. 
An earlier study indicated, on a preliminar}' basis, that a 12 percent 
reduction in electric supph' could reduce GNP b}* 7 percent in the 
short run.^ If we apply this relationship to the present outage an esti- 
mate of economic loss could be derived. To do so we need to determine 
the megawatt hours lost as a proportion of U.S. electricit}^ consump- 
tion. 

Consolidated Edison had dropped 6,100 megawatts at thetimeof the 
outage. Its load curve on a summer-peak day, however, indicates a 
load of 3,300 megawatts at 5:00 a.m. rising to a peak of approximately 
7,500 megawatts at 4:00 p.m. Working from these numbers we can 
postulate a probable m.aximum loss in energy during the outage period 
of 140,000 megawatt hours, or 0.007 of U.S. electric demand supply. 
In reality the energy loss was less, because some areas had service re- 
stored in a shorter time period than others. For our purpose, however, 
the 140,000 megawatt figure will be suitable. Based on the study re- 
ferenced above, a 1 ])ercent drop in electricity can cause a 0.58 percent 
drop in GNP. Assuming this to be correct, the GNP loss in the case 
of the Consolidated Edison blackout would be 0.004 percent or $60 
million. This approach, however, does not include social losses result- 
ing from rioting, nor does it cover nonmonetary losses for inconven- 
ience, lost time, etc. In regard to the latter, it may not be possible to 
estimate these nonmonetary losses. On the other hand, this kind of 
estimate may overstate the situation since it does not take account of 
the specific local econom}^ and the ease with which business output 
losses can be made up. In any case, such an estimating procedure is a 
rather gross measure and may be more appropriate for national 
electricity shortages than for blackouts covering a hmited area. 

Losses from a blackout of restricted geography will result in both 
regional and national costs. The latter will include all of the regional 
costs plus costs incurred by persons outside the impacted area as a 
result of the outage, less business transferred elsewhere. For example, 
in the case of the last point one could consider brokerage commissions 
collected on orders that would normally have been executed in New 
York, but were executed elsewhere, such as Chicago, as a result of the 
outage. Costs incurred by persons outside the area as a result of the 
outage will generally relate to lost output, although there will be some 
nonmonetary costs incurred by people unable to visit the city. Lost 
output outside the region will occur because of interrelations within 
the national economy. For example, a producer of gadgets in Phil- 
adelphia may suffer a loss because his New York supplier of widgets 
needed to make the gadgets is imable to maintain delivery schedules. 

The regional costs, which will comprise the bulk of the losses will 
vary depending on the extent of the area impacted. In this case, they 
will include losses for New York City and for Westchester County. In 
addition, the extent of the impact could be variable within the region. 
For exam])le, in the Consolidated Edison case an area not reconnected 
to the system for 25 hours and having a high commercial-industrial 
load will suffer far greater losses than a similar area reconnected within 
evening hours. 

•■' Tochiiiial Advisory Coinmittoe on iho Impact of Inadeciuate Eloctric Powit Supply. "The Adeijuacy 
of Future Kloctricity rower Fupply: Problems and Policies." Federal Power Commission. National Power 
Survey, March 1970. p. 81 . 



Further, the makeup of the area will have an im])art on the effect. 
Commercial-industrial customers are the most severely affected by an 
outage during working hours. In this {particular case, the outage oc- 
curred in the evening, but the inability to restore service to the bulk of 
the area during the night would have an impact on the commercial- 
industrial sector. These losses would include lost output, retail sales, 
employee absenteeism with consequ.ent lost wages, equipment damage, 
etc. Some of these losses would be made up at a later date. 

Residential customers, on the other hand, would be most severely 
impacted in the evening hours or during a winter cold wave or a 
summer heat wave. Residential losses would be primarily nonmone- 
tary in terms of inconvenience and time lost, but could include food 
spoilage due to lack of refrigeration, as well as equipment damage. 

In addition, the utility wiW suffer direct costs in terms of lost rev- 
enue, the cost of restoring service and the replacement and repair of 
damaged equipment. Aside from the above, the governments of the 
area wdll incur losses as a consequence of a blackout. These would 
include reduced tax collections due to lower sales and wages, addi- 
tional expenses for overtime and police and firemen on duty, compen- 
sation costs for police and firemen hurt as a consequence of riots or 
working in the dark, the closing of airports, environmental damage due 
to an inabilit}/^ to use sewage treatment and other abatement facilities, 
etc. 

On top of such costs will be losses imposed on societ^^ b}'" those who 
take advantage of the situation to riot, loot, and pillage. Such losses 
include damage to buildings and equipment, the value of stolen or 
destroyed goods, costs inherent in arresting large numbers of people 
and the costs attributed to an increased crime rate, etc. Such costs 
will not be incurred in every case. For example, there was no such 
damage in the 1965 blackout. In fact, the number of crimes committed 
during that event actualty declined. 

The above discussion thus indicates that we can break outage costs 
into two major classes, social cost and economic cost. The social 
costs are those incurred external to the event, in terms of rioting, 
pillage and governmental costs. Economic costs will include utility 
losses and nonutility losses internal to the outage. The latter will 
comprise lost output, spoilage, damage to nonutilit}^ plant and non- 
monetary costs. Utility losses will include lost revenue, service res- 
toration, and equipment damage. 

THE JULY BLACKOUT 

The cost of an outage ma}^ be impacted b}' the sequence of events. 
Therefore, before looking at cost, it may be useful to review that 
sequence.^ On the evening of July 13, Consolidated Edison was pro- 
ducing approximately 3,800 megawatts and importing an additional 
2,000 megawatts from other systems. Of the 3,800 megawatts gen- 
erated by the company, approximately 800 megawatts were located 

* Material in this section is based on the followiiig: A. "New York Blackout; Weak Links Tie Con Ed to 
Neighboring Utilities." Science, v. 197, No. 4802, July 20, 1977. pp. 441-442. 

B. Federal Power Commission; "Staff report on July 13-14, 1977, Electric System Disturbance on the Con- 
solidated Edison Co. of New York Inc. System." Aug. 4, 1977. p;i. 2-3. 

C, Board of Review; "First Phase Report, System Blackout and System Restoration, July 13-14, 1977." 
Consolidated Edison Co. of New York, Inc., July 20, 1977. 

D. "Second Phase Report (Analysis of System Separation)." Aug. 4, 1977. 



outside of the city; the import fio^ure inchides 870 megawatts from 
Indian Point 3, now o\\Tied by the Power Authority of the State of 
New York. 

The company's operating reserves were approximately 2,000 mega- 
watts. All interties were in service at the time except for the Hudson- 
Farragut connection to the Pennsylvania-Maryland-New Jersey 
power pool (PJM). At approximately 8:30 p.m., lightning knocked 
out transmission facilities between the Millwood West and Buchanan 
South substations. This resulted in the automatic shutdown of the 
Indian Point No. 3 generating unit, since there was no transmission 
available. In addition, transmission between Buchanan South and 
Ladentown went out due to fault}^ equipment. A second lightning 
strike at approximately 9:00 p.m. took out transmission between 
Millwood, Buchanan, and Sprainbrook. Shortly afterward, the 
Pleasant Valley lines tripped out. The compan}^ reduced voltage up to 
8 percent, blacked out portions of Westchester County and started 
some combustion turbines. These efforts were insufficient to stabi- 
lize the system. As a result, Long Island Lighting Co. was forced to 
cut its tie to Consolidated Edison in order to save the overloaded 
line. 

The overloaded Goethals-Linden line then faulted out and Consoli- 
dated Edison was on its own. As a consequence, and despite addi- 
tional load shedding, Ravenswood 3 (Big Allis) overloaded and shut 
down. By approximately 9:30 p.m. the remaining S3^stem generation 
had tripped out and the city was in darkness. Restoration efforts began 
at once. By 11 :00 p.m. the first intertie had been restored and by mid- 
night several others were back in service. Service restoration began 
at approximately 2:00 a.m. on July 14 for portions of Westchester 
County. All interties with the New York Power Pool were back in 
service by 4:00 p.m. Full service was not restored throughout the 
Consolidated Edison territory, however, imtil 10:30 p.m. on July 14. 

The delay in restoring service was stated b.y at least one Commission 
of Inquiry to be the result of an inability to pressurize the underground 
high-voltage cable system, an inadequate communications system, 
and the failure of the load-shedding s^^stem to operate.^ 

The blackout had widespread impact. Many businesses, particularly 
in Manhattan, were unable to attract customers. Further, the Wall 
Street community, which depends on rapid communication for sur- 
vival, was forced to close down. This, in turn, resulted in a drop in 
business at exchanges in other parts of the United States due to a 
lack of market leadership from the larger New York exchanges. All 
of this was further com])Oun{led by the inability of people to get to 
their jobs and, therefore, many businesses remained closed during the 
blackout ])erio(l. The business losses were further compounded by 
social disorder that erupted on the night of July 13. As a consequence, 
18,000 merchants suffered riot losses, of which 80 i)ercent were believed 
to be uninsured. In an effort to quell the unrest and put out the fires, 
local ])oHce and firemen worked long extra hours and some 250 State 
police were called on for duty the following night. There were 3,776 
arrests and two deaths rei)ortcd. Further, some 44 firemen and 418 
policemen were injured in the line of duty. 



» Special Commission of liujuiry into Eiiorgy Failures, Report of Special Commission, Vol. 1 and U, 
Dec. 1,1077, p. 186. 



The social costs 

Social costs break down into those incurred by government as a 
consequence of the riots, and those incurred by the victims of the 
riots. In the latter case, initial estimates went as high as $1 billion.® 
These appear somewhat overblown. A more accurate gauge of riot 
losses can be obtained from several sources including the Small Busi- 
ness Administration (SBA) and the Emergency Aid Commission 
(EAC). 

The latter has granted some $2.9 million for cash assistance and 
business reestablishment. Although this is a relatively minor amount 
of money, the Commission has made available considerable detail as 
to the profile of their applicants.^ Assuming these people to be repre- 
sentative gives us an indication of who got hurt and where. The bulk 
(55 percent) of the damage occurred in Brooklyn, followed by the 
Bronx (25 percent) and Manhattan (18 percent). Damage in Queens 
and Staten Island was relatively minor. Of the businesses damaged 
approximately 27 percent reported damage below $5,000, while 15 
percent were between $5,000 and $10,000, 20 percent between $10,000 
and $25,000, 16 percent between $25,000 and $50,000, and 12 percent 
between $50,000 and $100,000. Seven percent reported damage over 
$100,000 and there was no information provided on 3 percent. Thus 
the bulk of the damages — about 80 percent — was below $50,000. 
A large number of the businesses damaged (88 percent) employed 10 
people or less, with 41 percent of the total employing between 2 to 4 
people. Close to one third of the businesses were grocery or clothing 
stores, with another third comprising bars and restaurants, furniture, 
personal service, liquor, jewelry, service stations, and TV-record shops. 
The grants approved by the EAC represent $61.8 million in damage. 
A substantial portion of this total is covered by insurance or SBA 
loans. We, therefore, will only use the value of the grants in order to 
avoid duplication. 

In addition to the EAC grants the U.S. Department of Labor is 
reported to have made available $11.3 million in grants and loans. 
The riot areas, however, w^ere officially declared a disaster area thus 
making the occupants eligible for disaster relief loans. The SBA is 
responsible for administration of this program, which constitutes the 
bulk of the damage claims. 

The SBA damage loans may only comprise a part of the total damage 
since those deciding not to rebuild would not apply and others may 
have some other source of funding, such as insurance. Further, the 
SBA has a limit of $55,000 for home and $500,000 for business loans. 
In this case, based on the EAC data cited earlier, the limits might well 
cover most of the damage. Loan applications may also reflect a certain 
amount of ''padding" which SBA presumably would eliminate in the 
loan processing procedures. As of November 4, 1977, the Small Busi- 
ness Administration had approved $35.1 million in loans, another 
$22.7 million was still in the pipeline, $3.4 million had been withdrawn, 
and $14.6 miUion in requests had been refused. The latter represent 
actual damage, but may have been refused because the applicant 
lacked a suitable credit rating or collateral. SBA standards for disaster 
loans are far more lenient than for regular loans and these tend to be 



6 Newsweek, July 25, 1977. p. 19. 

7 Memorandum from D. McCarthy to Monte Wasch, Emergency Aid Commission, Nov, 21, 1977. 



e 

undersecured in any case, but some kind of security or adequate credit 
rating is required. The people refused thus tend to represent very poor 
credit risks. 

On this basis, and assuming that the apphcations in the pipehne will 
be approved at the initial value, and that the $3.4 million in withdrawn 
applications represents people v\^ho have suffered damage but decided 
not to rebuild, the SBA total stands at some $75.8 million. In addition 
some $30 million in damage claims were filed with private insurance 
companies. Assuming all of these Vvdll be approved at face value and 
considering the various loan and grant programs operated by Govern- 
ment agencies, we estimate total riot damage at $120 million. By way 
of comparison, the SBA estimated total damage at $156 million shortly 
after the blackout.^ 

Governmental costs. — In addition to the costs of riot damage, the 
various governmental jurisdictions incurred costs for emergency serv- 
ices, cost of arresting and holding large numbers of people, compensa- 
tion and medical costs for police and firemen injured in the line of duty, 
for the repair of public buildings and equipment, and for general clean- 
up of the streets, parks, etc. In order to assess these costs, both the city 
or New York and Westchester Count}^ were contacted for appropriate 
estimates. Their replies are shown in appendix A. In addition, some 
costs (such as those for arresting, processing, and jailing 3,776 people) 
were estimated by the authors. Additional cost estimates (such as re- 
pair of public buildings and equipment) were derived from various 
newspaper and magazine estimates.^ 

Table 1.: — Social costs, Consolidated Edison blackout, July 13-14, 1977 

Item 
Riot damage : Millions 

Small Business Administration $75. 8 

Insurance claims 30. 

U.S. Labor Department 11. 3 

Emergency Aid Commission 2. 9 

Total riot damage 120. 

Government costs: 

Emergency services: 

New York City 12. 1 

Westchester County 0. 1 

Total emergency services 12. 2 

Repair and replacement buildings and equipment 2. 9 

Cleanup 1. 

Other 1 0.7 

Total Government costs 16.8 

Grand total, social costs 136. 8 

1 Includes eatlmate of cost of arresting, procosslnp, and jailing 3,776 persons, 2 deaths, 
and Injury compensution plus medical costs for 462 police and firemen. 

The Total. — As indicated on table, 1 , total social losses are estimated 
at close to $137 million of which 88 percent constitutes riot damage, 
and another 9 percent for emergency services. The latter are primarily 
overtime costs for police and firemen. In addition, the injury and 
cleanup costs may tuin out to be larger tlian estimated. Cleanui) 

• N«wswo('k, Aug. 1, 1977. 

» Major sources used were the Now York Tinios, July 27 cdilion and Newsweek, August 1 issue. 



costs are particularly hard to determine since much of the cleanup 
was done by people already on the government payroll, and combined 
with regular sanitation services. In other cases there may be an over- 
lap between the riot damage and cleanup cost categories. Injury 
costs were estimated by the city at $300,000, and this may be some- 
what arbitrary. These items, however, are minor in relation to 
riot damage, so that an error of several orders of magnitude would 
be required to make a statistical difference. 

Not included in the social costs are those related to environmental 
damage. Equipment such as precipitators, sewage plants, etc., would 
not operate as a result of the lack of electricity, and thus would 
spew out their waste material. Inasmuch as this was summer with 
an absence of heating load, no power plant's were operating, and 
automobile traffic was minimal, air quality was probably not hurt 
and may well have been improved. 

Water quality, on the other hand, may have been substantially 
degraded as a result of the dumping of raw sewage into streams 
and watercourses. No information on the extent of this damage was 
obtained from the city. Westchester County, on the other hand, did 
estimate the cost of operating sewage plants at $35,000 per day. If 
w^e assume the abatement cost to be equal to damage costs we would 
have a rough indicator of the environmental costs. 

The economic costs 

The cost of the blackout to the economy will include output lost 
or deferrred, utility losses, governmental costs in terms of lost taxes 
and other revenues, spoilage and damage to equipment, as well as 
inconvenience and frustration. The latter items are not measurable 
and therefore are not considered here. 

Spoilage and equipment damage are difficult to estimate. Spoilage 
comes about as a result of a lack of refrigeration on a hot July day so 
that almost every resident of the city must have experienced some 
cost. Equipment damage, on the other hand, results from voltage 
surge or line overloads. Con Ed was asked for the total of the damage 
claims and law suits pending against the company as a consequence of 
the blackout. They have not been able to provide this information. 
As a consequence, we have derived a nominal figure based on the 
estimated daily value of food sales. 

Con Ed was also asked to provide information on its own blackout 
costs including lost revenue, cost of service restoration, and repair 
or replacement of damaged equipment. The company, once again, 
was uncooperative and we have been forced to use estimates attributed 
to the company and published in the newspapers. ^° Con Ed equip- 
ment damage consisted primarily of transformers and cable put out 
of service as a result of overloading. 

Output losses. — The New York City economy is primarily a com- 
mercial rather than an industrial economy. As shown in table 2, 
more than tw^o-thirds of the city's output is contributed by the 
wholesale and retail trade sector with wholesale trade alone com- 
prising 60 percent of the total. In considering these figures, one must 
keep in mind that data for the various sectors are not strictly com- 
parable concepts, but there is sufficient similarity for our purpose. 

1" "Con Edison Posts Gains in Results For 2d Period." Wall Street Journal, July 27, 1977, p. 6. 



8 



TABLE 2.— VALUE OF OUTPUT, NEW YORK CITY, 1972 AND 1977 
[Dollar amounts in billions] 



Output 
Sector 



Construction 

Finance, insurance, real estate. 
Manufacturing (value added).. 

Retail sales. 

Services 

Wholesale sales 





Estimated 


Percent of 


19721 


1977 


output 


$3.0 


$2.5 


1.2 


5.5 


12.0 


5.9 


11.6 


2i.6 


10.6 


15.0 


23.4 


11.6 


12.8 


22.7 


11.2 


72.6 


120.7 


59.5 



1 Technical Services Unit, "New? York State Statistical Yearbook, 1977" New York State Division of the Budget, Sep- 
tember 1977, p. 100-116. 

To derive our 1977 estimates we updated actual 1972 data usins; the 
New York State Department of Commerce business index, and ad- 
justed the result for inflation. The index (1967 = 100) is computed 
separately for New York City, various other parts of the State, and 
the State as a whole. It is a seasonally adjusted, weighted composite 
of 7 sectoral indices, each measuring the physical volume of activity 
in a sector of the economy. These include factory output, retail and 
wholesale trade, services, construction, transportation — communica- 
tion — public utilities, as well as finance — insurance — real estate. The 
index thus provides a fairly good indicator of business activity in the 
State and its political subdivisions. 

It should be noted that if inflationary im.pacts were not included, the 
real dollar volume would be somewhat less than in 1972 since there have 
been actual declines in construction, retail sales, and to a lesser ex- 
tent, wholesale sales. Value added by manufacturing increased, services 
have held constant, while the finance — insurance — real estate sector 
has exhibited substantial real growth. 

The overall index for the city indicates business activity is below the 
1967 level, and in July 1977 was equal to July 1976 (table 3). The city 
and State indices tend to follow the same trend, although the State 
exhibits a somewhat faster growth rate. Business activity in the State 
is above the 1976 level, primarily as a result of activit}'- outside of 
New York City. The latter, however, constitutes such a large portion of 
the State economy, that fluctuations in the city are bound to be re- 
flected in the State data. As a consequence, the city and State indices 
are highly correlated. This close relationship, resulting from the fact 
that one is part of the other, negates our ability to use growth in 
State business activity as a guide to the output losses in the city. A 
review of the two indices over a 15-month ])eriod (June 1976 — 
August 1977) shows no a])])reciable variation between them, nor does 
the July city index show any noticeable impact from the blackout. 
This may be due, in part, to the process used to adjust the data for 
seasonal variations, and partially to imprecision in the numbers. A 
major contributor to the failure of the monthly index to ])ick up the 
impact of the blackout is the fact that a full day's out])ut would only 
constitute 4 ])ercent of the monthly total. The actual ])roportion lost 
would 1)0 even less inasmuch as the city economy is such as to assure 



that the bulk of the output lost on the day of the bhickout will be 
made up at a later date. For example, the stock markets did not ap{)ear 
to suffer substantial losses (table 4). Tradinir during the week of the 
blackout was greater than it had been the ])revious week (which in- 
cluded the July 4 holiday), but less than the comparable week the 
year before. The year before had been rather high although succeeding 
wrecks in that year were at a lower level. In 1977, volume continued to 
build from the week of the blackout. Considering the erratic nature of 
the market and its sensitivity to political and economic events of the 
moment, it is difficult to draw firm conclusions. On balance, however, 
losses appear to be minimal. 

TABLE 3.-INDEXES OF BUSINESS ACTIVITY, NEW YORK STATE AND CITY BY SELECTED MONTHS, 1976 AND 1977 • 





Business index (1967 = 100; 
seasonally adjusted) 


Area and month 


1976 


1977 


New York City: 

June 


. 96 


96 


July 


95 


96 


August . . . . . 


95 


97 


New York State: 

June . . - . 


107 


108 


July 


107 


108 


August 


106 


110 


Upstate: 

June 


117 


120 


July 


. . . . 117 


119 




117 


120 









1 New York State Department of Commerce; "Business Trends in New York State," Septembe-- and October 1977; 
and "Quarterly Summary of Business Statistics, Nev/ York State, July-September 1976." 

TABLE 4.— WEEKLY TRADING BY STOCK MARKETS, SELECTED WEEKS, 1976 AND 1977 
[In millions of shares] 









Week of— 




Stock market 


July 11, 1977 


July 4, 1977 July 5, 1976 


July 12, 1976 


New York Stock Exchange. 




94.5 


83. 7 79. 8 
4. 3 3. 6 
3. 8 3. 4 
3. 2 4. 3 
1. 1 1. 2 
.6 .7 
.9 .5 


115.0 


Midwest 

Pacific . 




5.7 

4.5 


6.3 
3.9 


NASD 

Philadelphia 

Boston 

Cinncinnati 




4.5 

1.4 

.9 

.9 


5.1 
1.7 
1.2 

.6 


Source: Barron's, issues 


of July 11 


and 18, 1977, and July 12 and 19, 1976. 





On the other hand, Bureau of Census retail trade data for the city 
indicate a decline in daily sales from $52 million in June 1977 to $48 
million in Juh'. A part of this decline is the result of seasonal influences. 
The unadjusted retail sales business index indicates a decline between 
June and July of 2 to 3 percent due to seasonal factors. Adjusting our 
July data for seasonal influences indicates a retail sales loss from the 
blackout of approximately^ $3 million. These minor losses appear 
logical when one considers that wholesale and retail orders not placed 
on July 14 can just as easily be placed on another day. Thus, close to 



10 

95 percent of the retail business lost on the day of the blackout was 
recovered afterward. 

Estimation of losses from other sectors of the economy are more 
difficult to make due to a lack of data. As a consequence, we have 
turned to a grosser method and prepared a simple trend of the busi- 
ness activity index for the city to determine where the index might 
have been without the blackout. In this regard it should be kept in 
mind that although the percentage variations are small, the numbers 
are large. 

Working from the implied annual city output of $202.9 billion in 
table 2, and adjusting for seasonal influences, we estimate total output 
in July 1977 to be $16.3 billion. From the trend calculation referred 
to earlier we estimate this output would have been 0.3 percent higher 
if the blackout had not occurred. Thus we can estimate lost output as 
a result of the blackout at $49 milhon. This comprises 9 percent of 
the average daily output of $526 million, indicating that 91 percent 
of the output was made up in the ensuing days. 

In deriving this estimate we have not included data for Westchester 
County because service vv^as generally restored by morning. Thus busi- 
ness life should not have been severely impacted. Further, as the 
county economy is small relative to the city, its data would have been 
lost in the rounding process. 

During the course of the blackout, virtually all commercial activity 
came to a halt except for hotels. These did a rather good business. 
Although most of these businesses recouped their lost output in sub- 
sequent days, they did suffer a deferral of income, and in some cases 
additional costs for overtime, interest charges, etc. To compensate for 
this deferral of revenue we have considered as an economic loss inter- 
est at the rate of 8 percent per year on the $477 million in recouped 
output. xVlthough there is no way of determining the rate at which 
these deferred losses were made up, we have estimated that construc- 
tion and manufacturing deferrals were recouped through overtime at 
the rate of 2 hours per day for 4 days, that 25 percent of services 
(including hotels) were never deferred and the remainder made up in 
2 days, and that all other deferrals were recouped over the following 
week. An extra day's interest was levied to cover the intervening 
Sunda}^ This may well be a rather conservative estimate. 

Aside from the costs of the deferral, the city government would lose 
revenue due to reduced sales and wage tax collections, off-track betting 
revenues not collected, subway and bus fares forgone, etc. The wage 
taxes lost are particularly difficult to estimate since some employers 
paid wages for the day and some did not. For example, the city and 
Federal Governments paid for the day, but the state did not. Despite 
the (Ufficulty, the city has estimated its revenue loss at close to $20 
milhon. 

To the above costs, however, would have to be added an amount 
to cover the inconvenience suffered by the population in terms of 
lack of elevators, lack of air conditioning, lack of lights, etc. These 
costs, liowever, cannot be quantified in any definitive fashion and we 
have not tried. 

National costs. — The bulk of the blackout costs incurred by the 
economy will be regional in nature, and generally will have minimal 



11 

impact outside of the Consolidated Edison area. As noted earlier, 
however, the stock markets located in other cities <i:enerally operated 
at lower levels for the day. Also, various TV broadcasting functions 
had to relocate to Washington, D.C, for the period of the blackout. 
Further, losses were sustained by businessmen outside the rei^ion who 
were unable to buy or sell to those inside, as well as by those unable 
to ship to the city or receive g-oods from the city. In order to estimate 
these losses we have derived a multiplier based on the direct and in- 
direct requirements per dollar of delivery to final demand for the 
wholesale and retail trade sector.^^ This we have taken at 1.5 times the 
city's output loss. In computing- this multiplier the wholesale and retail 
trade sectors were utilized, since these account for 80 percent of New 
York City total output. In computing national costs, we have made 
no effort to deduct business transferred elsewhere, since as far as we 
can determine, there was none. 

In addition, the computed national costs implicitly include an allow- 
ance for lost revenues suffered by other utilities that would have sup- 
plied Consolidated Edison with energy had the system been operating. 
We estimate the average daily purchase at $0.5 million based on July 
1977 purchases of 666.7 million kilowatt/hours for $14.3 million. The 
company also paid capacity charges which are not reflected in the 
losses since we assume these would be paid in any case. 

Thus, we estimate national losses as $73.5 million or approximately 
2 percent of the nation's total daily output ($4 billion). 

The total. — As indicated in table 5, 43 percent of the economic costs 
were suffered by the Nation, and 29 percent were regional output costs. 
The importance of national costs is the result of our interdependent 
economy and the ripple effect that this engenders. It should be noted 
that if the city were more of an industrial bastion, the national costs 
would have been higher even with the same local output loss because 
the multiplier impact of most manufacturing industries is greater than 
the wholesale-retail trade sector. 

The cost of the blackout 

The cost of the blackout tends to be evenly divided between social 
and economic costs with the latter comprising 56 percent of the total 
(table 6). The largest single item of cost is riot damage (39 percent) 
followed by national economic costs (24 percent) . 

The costs imposed on the Nation by the blackout are a minuscule 
portion of annual GNP (less than 0.1 percent), but do comprise 7 per- 
cent of the daily average GNP. 

It may well be that the sheer size of the city coupled to the complete- 
ness of the outage combined to produce costs that would not be 
duplicated elsewhere, although the makeup of the city economy offsets 
these factors to some extent. 

In presenting the data it is our feeling that while the quality of the 
numbers varies from hard to speculative, the proportions between 
items appear logical, and the totals seem reasonable. 

11 Summary Input-Output Tables of the U.S. Economy: 1968, 1969 and 1970. Staff paper 27, Bureau of 
Economic Analysis, U.S. Department of Commerce, September 1975. p. 94. 



12 

Table 5. — Economic costs, Consolidated Edison blackout, July I8-I4, 1977 

Item 
Regional output costs: Millions 

Output lost $49. 

Deferral costs . 4 

Total 49.4 

Utility costs: 

Revenue losses and service restoration 10. 

Damaged equipment 10. 

Total 20. 

Governmental costs 19. 8 

Spoilage and damage 10. 

National costs 73. 5 

Grand total — economic costs 172. 7 

Table 6. — The cost of an urban blackout, July 13-14, 1977 
Item 
Social costs: Millions 

Riot damage $120. 

Government costs 16. 8 

Total 136.8 

Economic costs: 

Output costs 49. 4 

Utility costs 20. 

Governmental costs 19. 8 

Spoilage and damage 10. 

National costs 73. 5 

Total 172.7 

Grand total 309. 5 



APPENDIX A 

GOVERX.AIEXTAL CoST ESTIMATES BY THE CiTY OF XeW YoRK 

AND Westchester County 

The City of New York, 

Office of the Mayor, 
New Yorh, N.Y., January 4, 1978. 
Mr. Alvix Kaufman, 

Senior Specialist in Business Economics (Resources and Regulations) , The Library 
of Congress, Congressional Research Service, Washington, D.C. 
Dear Mr. Kaufman: In response to your November 18, 1977, letter to Mayor 
Beame, I submit the attached estimate of the cost of the July 13-14, 1977, 
blackout. 

I hope this information is adequate. 
Sincerely, 

Arthur L. Borut, 
Acting deputy director for development. 
Attachment. 

COST OF BLACKOUT. EXPENSES AND DAMAGES 
(In thousands of dollars) 







Costs 










Total 


PS 


OTPS 


CAP 


Total 


Agency: 

Corrections 

Education (BOE plus CUNY) 

Fire 

Housing authority operations 

Housing authority police 

HDA (demolitions).. 


770 

469 
1566 

390 

120 
1, 800 - 


540 

38 

1475 

360 

120 


80 

431 .... 
46 
30 .... 

""i,'8oo 


150 ... 
45"": 




Human resources. 


200 

2 ... 

3 ... 
9 

9,512 
8 ... 


180 

§■ 

9,502 . .. 


20 ..... 

2 ..... 

3 ..... 


io"":: 

8 .... 




Libraries... 




Parks 

Police 




Real estate 








Sanitation 

TAD 

TA operations 

TA police 

V/ater and sewers 


61 

59 

728 

150 

203 


35 

59 

620 

150 

40 


26 ..... 

ii ■ 


97'":; 

■ 163".".'" 




Total 


15, 050 


12, 128 


2,449 


473 .... 




Revenue losses: 

Taxes, fires, 0TB and water charges 










17, 400 


HHC 










365 


TAD 










166 


TA 










1,825 














Total 










19, 756 















• $300,000 additional in disability claims for firemen. 
Note: Total damages, expenses and revenue losses, $34,806,000. 

(13) 



UNIVERSITY OF FLORIDA 

llllllllllllll 

14 3 1262 09119 2665 



Westchester County, 
White Plains, N.Y., December 6, 1977. 
Mr. Alvin Kaufman, 

Senior Specialist in Business Economics, Library of Congress, Congressional Re- 
search Service, Washington, D.C. 
Dear Mr. Kaufman: This is in reply to your letter dated November 18, 1977, in 
which you requested the costs incurred by the various communities in West- 
chester as a result of the July 13-14 blackout. A survey was made by my office 
of Disaster and Emergency Services covering all political jurisdictions through- 
out the count}'. The figures are broken down into four (4) main categories and 
are as follows : 

(1) Protective measures (police, fire, DPW, etc.), $75,924.96; 

(2) Utilities (water, sewers, etc.), $12,907.76; 

(3) Pubhc facilities and related equipment $3,283.87; and 

(4) Other, $16,375. 

The grand total spent in Westchester County was $108,490.49. In addition to 
this money, the communities spent $46,335.35, which included administrative 
costs and fringe benefits. 

W^e were unable to come up with an estimate of the environmental damage. 
However, the per day cost to operating the sewage treatment plants in West- 
chester County is $34,550. 

If additional information is needed, please contact my office. 
Sincerely. 

Alfred B. DelBello, 

County executive. 

O